Investors Will Want Mesaieed Petrochemical Holding Company Q.P.S.C's (DSM:MPHC) Growth In ROCE To Persist

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Mesaieed Petrochemical Holding Company Q.P.S.C (DSM:MPHC) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Mesaieed Petrochemical Holding Company Q.P.S.C is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.11 = ر.ق1.9b ÷ (ر.ق17b - ر.ق351m) (Based on the trailing twelve months to December 2021).

Thus, Mesaieed Petrochemical Holding Company Q.P.S.C has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.

View our latest analysis for Mesaieed Petrochemical Holding Company Q.P.S.C

In the above chart we have measured Mesaieed Petrochemical Holding Company Q.P.S.C's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Mesaieed Petrochemical Holding Company Q.P.S.C here for free.

So How Is Mesaieed Petrochemical Holding Company Q.P.S.C's ROCE Trending?

Mesaieed Petrochemical Holding Company Q.P.S.C's ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 72% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

What We Can Learn From Mesaieed Petrochemical Holding Company Q.P.S.C's ROCE

To sum it up, Mesaieed Petrochemical Holding Company Q.P.S.C is collecting higher returns from the same amount of capital, and that's impressive. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Mesaieed Petrochemical Holding Company Q.P.S.C does have some risks though, and we've spotted 1 warning sign for Mesaieed Petrochemical Holding Company Q.P.S.C that you might be interested in.

While Mesaieed Petrochemical Holding Company Q.P.S.C isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.